Hong Kong’s Li Bets $3.3 Billion on Pubs Surviving Brexit
Li Ka-Shing-Backed Firm to Buy Greene King for $3.3 Billion
(Bloomberg) -- A year after taking the helm of Hong Kong’s biggest conglomerate from his father Li Ka-shing, Victor Li is making a $3.3 billion bet that Brexit won’t dent the value of U.K. pubs or the land under them.
The family’s CK Asset Holdings Ltd. unit agreed to pay 2.7 billion pounds ($3.3 billion) for Greene King Plc, which operates more than 2,700 British bars, restaurants and hotels. After jumping 51% on Monday to match the 850 pence-a-share bid, Greene King shares traded 0.6 percent lower early Tuesday in London. CK Asset climbed less than 1 percent in Hong Kong.
CK Asset said “pubs will continue to be an important part of British culture and the eating and drinking out market.” The conglomerate’s U.K. expansion signals confidence that turmoil around the country’s plan to exit the European Union won’t sink the economy, even as it erodes the price of the country’s currency and assets.
“If not for Brexit, the price would have been different,” said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets. The deal fits the company’s strategy to boost rental income, he said.
Greene King had lost more than one-third of its market value over the past four years prior to news of the deal, while the pound has depreciated about 18% against the Hong Kong dollar since the June 2016 Brexit referendum.
The investment should generate reliable cash flow, Kan said.
The increasing possibility of a no-deal Brexit has fanned uncertainty about how the country will trade with neighbors, sending the pound to the lowest since 2016 and curtailing business investment. Yet shoppers in the U.K. have kept spending, and retail sales rose in June.
Britons were more optimistic in July than the previous month, researcher GfK’s confidence measure index showed.
Greene King has an established position as well as attractive real estate assets and a resilient financial profile, CK Asset said in a statement.
The Li family controlled group already has a sprawling European footprint after the company bought up retailers including A.S. Watson Group, telecom operators like Italy’s Wind Tre and utilities including Northumbrian Water Group Ltd., Wales & West Gas Networks Holdings and Eversholt Rail Holdings UK Ltd. Europe accounted for 55% of earnings in the first half of this year for the flagship CK Hutchison Holdings Ltd., with 22% of the total coming from the U.K.
In June, CK Asset spent 1 billion pounds ($1.2 billion) to acquire the London headquarters of UBS Group AG.
CK Hutchison shares slumped about 15%, compared with a 37% gain for the Hang Seng benchmark, between the June 2016 Brexit vote and late June this year, when Hong Kong erupted in protests against a bill to allow extradition to China. The stock has slumped a further 9% since the demonstrations began.
Hong Kong Unrest
Li Ka-shing, who last week called for calm in newspaper ads, had already been diversifying away from real estate in Hong Kong in recent years.
Li, who embodies the rise of Chinese moguls in Hong Kong, was a refugee to the city. He swept factory floors as a teenager and rose to the pinnacle of the city’s business leaders, heading a wide-ranging conglomerate that built skyscrapers, provided mobile-phone services and controlled ports across the globe.
With a net worth of $28.3 billion, he retired as head of CK Hutchison and CK Asset in May 2018 and is now a senior adviser to the group.
His son Victor Li, who took the helm after years at his father’s side, has also been shopping outside Hong Kong, said Shaun Tan, an analyst at Uob Kay Hian in Hong Kong.
The Hong Kong group has been looking into “giant acquisitions overseas” for more than a year, said Tan. The deal shows CK Asset remains confident in the U.K. economy despite the risks of Brexit, he said.
The Greene King purchase is the group’s biggest bet since the $5.6 billion purchase of Australian power provider Duet Group in 2017, according to data compiled by Bloomberg.
To contact the reporters on this story: Thomas Buckley in London at tbuckley25@bloomberg.net;Shirley Zhao in Hong Kong at xzhao306@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, ;Sam Nagarajan at samnagarajan@bloomberg.net, Dave McCombs
©2019 Bloomberg L.P.